Italy's Renzi pledges to hike budget deficit if he wins election

Italy's Former Prime Minister Matteo Renzi arrives to board a train during his electoral tour

Thomson Reuters

ROME (Reuters) - Former Prime Minister Matteo Renzi said on Thursday that if he wins next year's election he will slash taxes and sharply raise Italy's budget deficit rather than lower it as European Union rules require.

"We'll take the deficit back up to 2.9 percent (of gross domestic product), cutting taxes by 30 to 50 billion euros ($59.14 billion)," Renzi, the leader of the ruling Democratic Party (PD) said in an evening television interview.

Italy has committed to cutting its deficit to 1.6 percent of GDP next year from a targeted 2.1 percent this year, and to balance its budget in 2020.

Brussels says reining in the annual deficit toward zero is necessary to bring down Italy's huge public debt of 132 percent of GDP, the highest in the euro zone after Greece's.

Ahead of the election to be held by May, all the main parties have come out strongly against the EU's so-called "fiscal compact", agreed in 2012, which sets tough deficit and debt-reduction goals for high-debt countries like Italy.

Renzi resigned as prime minister in December last year after losing a referendum over his plans for constitutional reform, and was replaced by his former Foreign Minister Paolo Gentiloni.

He first floated the idea of hiking the deficit in a book he published in July, but the suggestion drew a cool response from Italian government ministers and the EU.

The PD is running neck-and-neck with the anti-establishment 5-Star Movement, according to opinion polls, but the surveys suggest no party or coalition is likely to win a working majority in parliament.

(reporting by Antonella Cinelli; writing by Gavin Jones; editing by Peter Graff)

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